Hello, and welcome to Universal Logistics Holdings’ First Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. [Operator Instructions] A brief question-and-answer session will follow the formal presentation.

During the course of this call, management may make forward-looking statements based on their best view of the business as seen today. Statements that are forward-looking relate to Universal’s business objectives or expectations and can be identified by the use of the words such as believe, expect, anticipate and project.

Such statements are subject to risks and uncertainties and actual results could differ materially from those expectations. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host Mr. Tim Phillips, Chief Executive Officer; Mr. Jude Beres, Chief Financial Officer and Mr.

Steven Fitzpatrick, Vice President of Finance and Investor Relations. Thank you. Mr. Phillips, you may begin..

Thank you, Kyle. Good morning, and welcome to Universal Logistics Holdings 2023 first quarter earnings call. I'd like to start off by recognizing the incredible efforts of Universal's over 10,000 associates who worked so hard to make our organization best-in-class provider of customized transportation and logistics solutions.

Although, a challenging comparison to 2022, the first quarter of 2023 was Universal's next best first quarter financial performance on record. Anchored by the results of our contract logistics segment, I'm pleased with our overall performance despite the significant headwinds we faced in our transactional transportation services.

The transportation and logistics community saw a first quarter ramp in inventory destocking, excess truck capacity and low demand for consumer goods.

While we felt significant price and volume pressure on our transportation services, our teams did an excellent job managing our controllable costs, while delivering excellent customer service, and capitalizing on continuous improvement initiatives across the organization.

Each segment is focused on operational excellence, increasing the productivity of our assets and rationalizing headcount. The start of 2023 confirmed that we have built a solid foundation for sustainable success in a variety of market conditions. The model has proven to be resilient, and we continue to look for additional opportunities to scale.

The pipeline has continued to blossom in our contract logistics space. And I feel our talent, technology and customer centric business approach makes us a front runner in several of our large bid opportunities across many different verticals.

Our transportation pipeline also remains full of opportunity, but the scale of business wins is influenced by the current market conditions and price reduction exercises by our customers. Market share will continue to be our drumbeat.

As long as the margin profile is conducive to our overall business goals, we still remain optimistic on the autos and Class 8 truck space, and have a very positive – have had very positive conversations on the order books for agriculture, heavy machinery and aerospace.

While the retail market and its overall inventory below remain concerning, we continue to rationalize our pricing to remain competitive while earning a fair return in exchange for our services. Now for the quarter. In yesterday's release, Universal reported 2023 first quarter earnings of $0.95 per share on total operating revenue of $437.4 million.

While we fell short of last year's record-setting performance, the first quarter of 2023 with Universal's next best financial performance Q1 on record. Demand for our contract logistics segment held firm throughout the quarter, and our diversification strategy is paying dividends in a depressed transportation environment.

Now for some color on each of the service lines. In our Contract Logistics segment, the number of active programs grew to 65 which was a 3.2% increase over active programs in Q1 of 2022. There continues to be strong demand for outsourced logistics services in a variety of spaces.

We feel there's real opportunity to showcase our existing operations to potential customers, which offer a combination of experienced human assets, efficient processes and our proprietary technology. Auto production sustained a relatively consistent work cadence during the quarter associated with a more normalized supply chain fluency.

Although periodic six-day production was reserved for plants with high demand vehicles, the SAAR was elevated over 2022, while tracking near 15 million units as the demand for vehicles remains strong. We are very pleased with the performance that our auto sector platforms and expect continued consistency for the remainder of the year.

2023 Class A production picked up the year where 2022 left off. Estimates are for another year that looks very similar to 2022, with North American production forecasted to be in excess of 300,000 units.

While production is still elevated, we have heard of some supplier issues that may challenge these projections, levels of production over the next several quarters. We are extremely excited about 8 new programs that are launching or beginning to launch in Q2.

The medium-sized programs in a variety of verticals and are expected to add $17 million in annual revenue at full run rate. Our launch teams continue to execute in a timely and effective manner, delivering seamless transitional business continuity to our customers.

As mentioned, we have encountered a number of new outsourcing opportunities not only from our sales efforts but from the effect of delivering of logistics solutions in the marketplace. Our value-added service pipeline continues to grow, reaching the largest dollar value of potential projects ever approaching $600 million.

We approach each opportunity with a collaborative and highly engineered solution. We are eager for our current and potential customers to see a real working study of our execution and believe we remain in the hunt well into the later innings of the procurement process on most opportunities.

The Dedicated Transportation group continues to experience opportunity and growth. Our high velocity model allows us to move large amounts of freight with an incredible accuracy rate for customers who demand high level of execution like the audit.

Our success in these environments continues to be on display, which is a great lead into additional opportunity for existing customers and a great case study for new customers looking for the next level of execution and service. Revenue for the quarter was up 12.9%, driven by increased volumes and solid pricing with our strategic partners.

We continue to secure and allocate new equipment for our dedicated fleet, both for replacement and growth. We are committed to keep the average age of our truck fleet around three years, which helps elevate our uptime to continue to deliver velocity service.

Newer equipment also enhances the driver experience in the safety profile, which has proven positive with our recruiting and our retention efforts. We exited the quarter launching a new large automotive account in the Southeast, which requires 80 drivers, over two shifts and five to six days a week.

We expect the run rate on this account to be over $13 million annually. As mentioned before, this launch accompanies other smaller launches and new wins with a combined run rate of over $24 million in revenue annually.

We continue to see quality dedicated opportunities in the pipeline, and feel extremely strong on the talented bench of employees, with industry experience to support our long-term growth objectives to bring velocity to multiple service sectors. Our intermodal drayage group continues to experience both volume and pricing headwinds.

Important volumes -- import volumes at North American ports were down nearly 30%. Influenced by continued inventory destocking and low consumer demand for products, the average revenue per load ex-fuel was down 18.7% and to $567 per load as customers continue to evaluate their pricing models and capitalize on very loose capacity.

The lack of import volumes had direct effect on the number of loads hauled in the quarter, which fell 20.7% and contributed to a 29.6% decline in top line revenue over the same period of 2022. Receiving accessorial charges also remained a theme and were proportional to supply chain disruption in 2022.

In particular, a reduction in port and rail congestion, resulting in a more fluid supply chain, which reduced per diem, storage and demerge billings over 25% or $10.2 million. Our Southern California operations continue to have strong influence on intermodal numbers, driven by import volumes declining over 30% over Q1 2022.

Reduced volumes, coupled with callbacks and pricing eroded top line revenue, which was down 56% over Q1 2022, due to our heavy retail focused customer base.

We have had great success recruiting company drivers, since moving to an employee driver model in California but lower volumes have negatively impacted our ability to optimize and ultimately scale our company truck operation.

But I'm very happy with how quick we were able to find assets and recruit drivers, which puts us in a compliant position for our customers when volumes do normalize in the market. We've experienced several nice customer wins in recent months, and our pipeline remains robust with opportunity.

Our sales team has been extremely aggressive mining new customer opportunities, and we continue to demonstrate our ability to create value for our customers by supplying company-owned, long-term lease chassis, which now number over 3,500 units and storage solutions around the vast national terminal network.

Volume headwinds were also the storyline in the Trucking segment. Overall, load count was down 11.8%, coupled with an 8.8% decrease in revenue per load. Our open deck load count was down 10%, but steel and metal volumes were relatively flat year-over-year and pricing still in positive territory.

On the van side, low count was down 15%, with retail and consumer goods up over 30%. Top line revenue of $79.7 million was down 18.2% for the quarter, while operating income of $3.8 million was a decrease of $3.6 million over the prior year period.

Our agent-based truckload model is well positioned to ride out a freight downturn with its variable cost structure, while continuing to produce consistent margins. Interest in our agent model continues to grow. Our pipeline shows the results of our business development efforts. In fact, we added 12 new agent representatives in Q1 of 2023.

I believe our agent model anchored by a team of experienced employees, coupled with more competitive environment, makes UACL quality decision to assist in carrier conversions and agents demanding additional support.

Company-managed brokerage saw top line revenue dropped 47.9% and in the quarter to $34 million as inflation and consumer spending created competitive pricing and less tender opportunities.

We continued our disciplined approach in regard to operating margin, which put additional strain on spot market opportunities as our contractual freight remains over 80% of our top line revenue.

As mentioned in our release, earnings in this segment were negatively impacted by a $1.2 million pre-tax settlement for auto liability claims in excess of policy limits, which equated to 350 basis point reduction. Operating revenue per load decreased 22.1% to $1,696 per load and the low count was down 18.9%.

Gross margins were better than Q1 2022 margins as we experienced a continued reduction in purchase transportation while remaining disciplined on rates. There's been no shortage of bid opportunities, but pricing has been hypercompetitive.

We will remain disciplined on pricing and look for returns that fall within our expectations given the current environment. We continue to remain cautious on the economic environment entering Q2 of 2023, inflation, customer destocking and the general mood of the consumer continues to evolve.

We believe transportation will remain under pressure with an abundance of available capacity and leading indicators like imports showing no near-term signs of improvement. We look for optimization opportunities to take costs out of our intermodal and brokerage segments, while adding density to our variable cost structure agent truckload segment.

We remain extremely optimistic on the continued growth of our high-margin contract logistics segment and are encouraged by the optimistic conversations we are having with autos, Class 8, agriculture, heavy equipment and aerospace customers.

Finally, as I had mentioned in our earnings release, I'm impressed with the performance of the Universal team in this challenging environment.

While it appears we continue to face inventory destocking, inflation and rising interest rates, I'm convinced that our diversification of services continues to provide opportunities and stability in the current environment. We continue to focus on quality service versus for our customer and continued value for our shareholders.

With that, I would now like to turn the call over to Jude for a detailed view of our financial performance..

Great. Thanks, Tim. Good morning, everybody. Yesterday, Universal Logistics Holdings reported consolidated net income of $24.9 million or $0.95 per share on total operating revenues of $437.4 million in the first quarter of 2023.

This compares to net income of $42 million or $1.56 per share on total operating revenues of $523.9 million during the same period last year. Consolidated income from operations was $38.2 million for the quarter compared to $57.8 million one year earlier.

EBITDA decreased $18.3 million to $56.7 million, which compares to $75 million during the same period last year. Our operating margin and EBITDA margin for the first quarter of 2023 are 8.7% and 13% of total operating revenues. These metrics compare to 11% and 14.3%, respectively, in the first quarter of 2022.

Additionally, during the first quarter, we recorded a settlement charge in our company-managed brokerage segment of $1.2 million. This charge impacted our EPS by $0.03 in the quarter.

Looking at our segment performance for the first quarter of 2023 in our contract logistics segment, which includes our value-add dedicated -- and dedicated transportation business, income from operations increased $4.3 million to $27.8 million on $211.3 million of total operating revenues.

This compares to operating income of $23.5 million on $201.6 million of total operating revenue in the first quarter of 2022. Operating margins for the quarter were 13.1% versus 11.6% last year. In our Intermodal segment, operating revenues decreased $46.6 million to $111 million compared to $157.6 million in the same period last year.

And income from operations decreased $16.2 million to $6.8 million. This compares to operating income of $23 million in the first quarter of 2022. Operating margins for the quarter were 6.1% versus 14.6% last year.

In our Trucking segment, operating revenues for the quarter decreased $17.8 million to $79.7 million compared to $97.5 million in the same quarter last year. And income from operations decreased million to $3.8 million. This compares to operating income of $7.4 million in the first quarter of 2022.

Operating margins for the quarter were 4.8% versus 7.6% last year. In our company-managed brokerage segment, operating revenues for the quarter decreased $31.2 million to $34 million compared to $65.2 million in the same quarter last year, while income from operations decreased $4.3 million to an operating loss of $400,000.

This compared to operating income of $3.9 million in the first quarter of 2022. Operating margins for the quarter were a negative 1.1% versus 5.9% last year. Excluding the previously mentioned legal settlement in the quarter, our company-managed brokerage segment's operating margin would have been 2.4%.

On our balance sheet, we held cash and cash equivalents totaling $76.8 million and $10 million of marketable securities. Outstanding interest-bearing debt net of $4.2 million of debt issuance costs totaled $377.7 million at the end of the period.

Excluding lease liabilities related to ASC 842, our net interest-bearing debt to reported trailing 12-month EBITDA was 1.25 times. Capital expenditures for the quarter were $31.3 million. For the full year of 2023, we expect capital expenditures to be in the $160 million range, excluding the acquisition of any strategic real estate.

Interest expense for the year is expected to come in between $20 million and $25 million. Based on the current operating environment, for the second quarter of 2023, we are expecting top line revenues between $420 million and $440 million and operating margins in the 8% to 10% range.

We expect continued softness in both volumes and rates across our transactional transportation businesses, but a stable operating environment for our contract logistics business. Finally, Wednesday, our Board of Directors declared Universal's $0.105 per share regular quarterly dividend.

This quarter's dividend is payable to shareholders of record at the close of business on June 5, 2023, and is expected to be paid on July 3, 2023. With that, Kyle, we're ready to take some questions..

Okay. Thank you, Mr. Beres. We'll now begin the question-and-answer session. [Operator Instructions] Our first question comes from Chris Wetherbee with Citi. Please go ahead..

Hey, good morning, guys. This is Matt, on for Chris. Appreciate the detail on the quarter. Wanted to just touch a little bit more on intermodal here. Obviously, the space has been under some pretty serious pressure, which has been a theme this earnings season.

We were just wondering if there's any additional color you might be able to provide as we think about, the second quarter and into the back half of the year, this also sort of intertwines with your guide, the guide details that you guys just put out. And are customers giving you feedback as to when volumes could begin rebounding.

I mean, how exactly are you thinking about the situation? What do you see we're at at this point in time working through the bloated inventories. I know during the last call, Tim mentioned some rebound after the Chinese New Year.

I just didn't know if there's any update in general, sort of drilling a little bit deeper into the intermodal side of things on that front. Any detail on that front would be great. Thanks..

Yes, sure. I appreciate the question, Matt. Everything we have seen from a first quarter look back is import volumes were down significantly, just about everywhere, except for maybe the Gulf, which saw a slight bit of increase. As you know, we're situated around the country, all the major ports.

We have significant density in Southern California, a significant density in the Southeast and the Northeast. So what we're hearing from our customers, especially on the retail space is a lot of wait and see.

They think there will be some normal seasonality to what's going to be in the future, but they're not willing to say that the second half of the year is going to be a big rebound.

Nobody to this point has committed to saying that the second half of the year as we see walk into the back-to-school in the holiday season is going to see any kind of large uptick.

They expect that, at least at this current state to be somewhat muted, even some of our customers saying that, if you have other customers saying that you're going to have a rebound in the second half of the year, then it's going to be real strong, you may want to really rationalize that because some are just not believing it.

So it's not just the retail space. We deal with some other retailers in chemical, we deal in raw materials. We deal in office furniture. Really, there hasn't been anybody that's come forward and said that we expect a real big increase on our imports.

Even going and talking to some of the ocean liners, which -- there's that information out there in the news. There's no real expected quick rebound. There's optimism on the second half of the year turning more normal, but with the muted peak season. And I did say, we were hoping for a rebound after the Chinese New Year.

And to this point, we really have not seen any rebound. I think as we exited the first quarter, on the intermodal side, I would even say that maybe April is a slight bit short of where we were in March. So, it's still pretty soft out there, Matt..

Awesome, great. Yes. No, I really appreciate that incremental detail. And then just a quick follow-up. So, you touched on some -- a couple of different retail versus industrial.

Are you not seeing any specific sort of trends in general on that side of things? I don't know if there's just any additional detail that you could provide on the areas of your business, retail versus industrial? And sort of, if there's any specific themes or trends that you're seeing on that side of things?.

Yes. I would say definitely on the retail, at least what we service, there is no real indication of any quick rebound. Like I said, they're down as we had said in the California conversation, double-digits.

As it comes to more of the raw material or chemicals, chemicals the customers who deal with seem to be flat to down, the raw materials on the customers we deal with are definitely down. So it's telling me that they're bringing in less and probably going to be producing less.

As far as any other color on consumer goods, it's just kind of a wait and see. Nobody has given us any real clear indication.

The one thing that's a resounding theme, as I said, from the overall customer sentiment is that volumes would increase but very slightly based on seasonality and nobody expects a huge uptick or peak season at this particular point..

Awesome. Really, really appreciate the detail. Thanks so much, guys..

Thank you..

Thanks, Matt..

Our next question comes from Bruce Chan with Stifel. Please go ahead..

Hey. Good morning, team. Thanks for all the color so far. This is Andrew on for Bruce. I kind of wanted to dig into the manufacturing inventories a little bit. We're looking just at the government data, the IS data, they seem to be carrying the most excess inventories.

I just kind of wanted -- but we're not really hearing a lot of conversations about destocking on that side of the economy.

So I wanted to get your sense of conversations with customers regarding industrial inventory? Do they kind of expect the destocking theme to help drive an inflection like consumer focus or at some point, we know kind of getting pushed out here, but are they expecting a similar theme?.

Well, from a -- what we deal with from an import standpoint that leads into manufacturing. The companies we're dealing with, there really has been no prediction of a climb out of the trough that they're in right now.

Now I will tell you this, from a manufacturing side or an agricultural, heavy equipment, in aerospace, we feel really good about that in our conversations with customers. Not only is there seem to be a good demand for the product. There's also a back order, it seems like the order books are still full.

So we expect to be able to stretch our legs, hopefully, the remainder of the year. I mean it's hard to predict third and fourth quarter. We're pretty bullish on that segment, continuing to support active growth in our portfolio..

That's helpful. I was kind of -- it kind of leads me into my next question about -- you discussed how aggressive the sales team is being in sourcing new customer opportunities, especially in intermodal here. I was hoping to kind of lift the hood a little further there.

Are you guys going after new end markets, given the retail exposure there and the retail weakness, or just kind of be helpful to understand where you're finding success and difficulties of it? Are you guys finding success in those verticals you just mentioned?.

Yes. In the intermodal marketplace, like I said, we do a lot in retail. We're going to do a lot of freight of all times, too, because of the way that the import structure works in the state. But, yes, we're looking to diversify -- we're always looking to diversify our customer base.

And it's a direct effort of the sales team, and it's a good collaborative effort that we communicate, right? We're cross-pollinating customers across service lines that could be different verticals that we may not have experienced in the intermodal standpoint.

At the end of the day, I see good and I have seen good bid volumes flowing through, really, when it's come down to, Andrew, is pricing, right? The customer is hyper-focused on pricing and gaining back some of what they potentially have lost over the last year, 18 months, two years, and we just have to be exceptionally competitive no matter what the vertical is that we're going after to try to -- because really what we're doing is, attempting to take market share from somebody else.

So it's been hypercompetitive. But, yes, we will continue our diversification, not just on intermodal, but we're looking for diversification on multiple operating segments..

Great. That's helpful as well. If I can just squeeze in one more. On the pricing front, you guys discussed accessorials inbound 25% kind of rolling off faster than you had expected.

I just kind of wanted to get your -- how that did compare to your expectations? I mean, how quickly are -- were you expecting accessorials to roll off, or rather how quick did you get to that point? How -- when are you expecting accessorials to roll off to this point, sorry..

Well, that's a loaded question to unpack, because it's hard to forecast, but some of your accessorials run in conjunction with just your general load volume, right? We're billing certain accessorials that accompany a movement of a piece of intermodal freight. So number one, the volumes are lighter.

And number two, just like on the base dray pricing, the customer is expecting some reductions in some of the accessorial bases. Now, how did we get to the point last year where accessorials were so elevated, was a direct result of the supply chain and the supply chain congestion.

So we offered our customers distinct solutions, whether it’d be storage solutions, whether it’d be helping them manage what they had at the ports and rails. So there was a lot of flow of funds, but it was because of the congestion and the environment. So we expected some of that to peel off as fluency found itself.

And for the most part, if you read anything in the news, fluency has found itself at most port operations, doesn't mean they're fluent within the port in all cases, but the amount of imports coming into the country has definitely normalized. So we expected that there would be some falloff in some of those accessorials.

And I think if you go back, and I think Jude would agree with it, that's why we took a deep look an honest look in the fourth quarter, because we saw some of these leading indicators that say, hey, wait a minute, you have to pay attention, because we -- this supply chain starting to become a little more affluent and things are slowing down.

So, that's one of the reasons we guided the way we guided in the fourth quarter because of what we saw. So, that's a long extended answer, but that's what we're seeing..

No, that's extremely helpful. I appreciate that. And I guess if I can promise this will be the last one. But I just wanted to just kind of ask where the optimism is coming from that's driving -- where you're getting your optimism that's driving behind the expectations for auto to continue doing well.

That's been really a bright spot of the economy so far. Just any anecdotes from customers on especially the consumer auto front.

We've seen the Class 8 data, but like a little bit more -- just a little bit more content on consumer?.

You probably -- and many people on the call probably have listened to some of the autos and Class 8s because some of them were reported already. We're getting our realistic outlook from some of the numbers we're seeing from a production standpoint. And I do know inflation is there.

I know that interest rates are rising, but there's still optimism within the auto and Class 8 group that there'll be continued sales throughout the year that should be at a good cadence. And we're seeing nothing different -- at this point, we're still bullish on Class 8 because we know there's a lot of pent-up demand.

If you remember, last year -- and in 2021, it's very, very difficult to get a new vehicle, a new Class 8 truck. So, those order books are still out there. Will some peel off? Sure, they would as the economy goes. But we're -- everything aligns itself that they're optimistic for the rest of the year.

And the autos, they still feel that they're selling the vehicles that are out there that and especially from what we deal with. We deal with plants that produce high-demand vehicles. and that's where we centered ourselves around. So, we're comfortably optimistic that we'll continue to see this cadence through the next several quarters..

Well, good to hear. Thanks so much for the time and information this morning..

Yes. Thanks Andrew..

[Operator Instructions] There being no further questions. This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Tim Phillips for any closing remarks..

Thank you, Kyle and thank you for spending time with us this morning to cover our Q1 performance. As mentioned, I'm extremely pleased with our contract logistics roadmap moving forward this year.

While the transactional transportation segment may be experiencing some headwinds, we will remain committed to productivity improvements and rationalizing our human assets in the various segments. We continue to look for opportunities to diversify our portfolio by cross-pollinating our customer base among our various service segments.

With that said, I look forward to continued conversation on our Q2 earnings call slated for July 28. Have a great day. Thank you..

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect..